Property-tax bill rising? Here's one reason why
Now that property-tax bills are hitting mailboxes, I've started to hear variations on this theme: "Why the heck did my tax bill go up if my property assessment went down?"
Blame the Homestead tax credit -- that's the most likely reason, anyway. The complex system for shielding owner-occupiers from big increases has a flip side, namely that many homeowners continue to see their total-due expand in a downturn.
Here's why:
The Homestead credit caps your bill by preventing your taxable assessment -- the amount of your property assessment you're actually taxed on -- from increasing more than a certain percent each year. That ranges by jurisdiction in Maryland from zero to 10 percent. In Baltimore and Baltimore County, it's 4 percent.
As long as the tax rate doesn't change, that effectively caps the increase in your tax bill by the same amount.
But here's the rub:
Say you bought a city home in 2000 when its assessed value was $100,000 and watched the value skyrocket to $200,000 in 2005. Now the assessors say it's worth $170,000. Will you see a tax decrease? No. Because you're only paying on $154,000 of that value -- $100,000 increased by 4 percent each year through 2011.
And if tax rates stay unchanged, you'll keep paying 4 percent more a year until you catch up with your full assessed value -- either by dint of time, more property-value drops or both.
Another Homestead-credit complexity that confuses the heck out of people: New buyers who move in partway through the fiscal year -- which runs July 1 through June 30 -- pay taxes for that partial year as if they were the previous owner, inheriting that person's Homestead credit if there was one. So it's not unusual for a new homeowner's taxes to jump a lot on his or her first July 1 in the property. That homeowner won't be eligible for the Homestead tax break until the following July.
Also, keep in mind that big renovations can affect your tax bill even if you have the Homestead credit. That's another "whaaa?" moment for homeowners.
If you're itching to appeal your assessment, here's a post with links that will get you going in the right direction. Just remember that an appeal will only decrease your taxes if you can get your property assessment lowered to an amount below what you're actually paying taxes on now.
If your bill doesn't note that taxable assessment, just your full assessment, never fear. You can figure it out.
First, look for the line that tells you how much your jurisdiction -- Baltimore or one of the counties -- is taxing you before the effect of the credit. Subtract the credit amount to get your bottom-line locality tax.
Multiply that number by 100.
Divide by your locality's tax rate, which should be on the bill but is also listed here -- well, last year's fiscal rates are, at least. (They're shown per $100 in value, which is why you needed to multiply by 100 first.) For Baltimore, it's $2.268.
And there you are -- your taxable assessment. This is the important number: If you appeal and persuade the state that your property is worth less than this amount, you'll lower your tax bill. But if, as in the example of the city homeowner above, your true value is between your $170,000 full assessment and your $154,000 taxable assessment, you'll see no (immediate) effect on your taxes.
If you're planning to sell and you're in this "in between" situation, you might want to appeal anyway to save your prospective buyers the trouble of appealing themselves. Or maybe you don't, if you're convinced that a lower assessed value will interfere with your asking price. This seems to be a point of some contention. What do you think, buyers, sellers?
Categories: Homestead Property Tax Credit, Property taxes
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Comments
Do you know if one has to apply for the Homestead Credit each year? There was some literature with my Baltimore City tax bill that said that the credit must be applied-for every year.
Posted by: BP | July 8, 2011 8:46 AM
Unless something changed when I wasn't looking, BP, you only have to apply once. That in itself is different than it used to be because the state is trying to ensure that people don't collect the tax break on more than one property. So if you haven't applied yet, make sure you do. Information here: http://www.dat.state.md.us/sdatweb/Homestead_app.htm
Now, the Homeowners' Property Tax Credit, which is for lower-income residents, does need to be applied for annually: http://www.dat.state.md.us/sdatweb/htc.html
Posted by: Jamie Smith Hopkins | July 8, 2011 9:37 AM
The guy I spoke to at the Bcity Tax department said once you file out the application for the homestead tax credit it stays on file whether it is used or not, even if your value goes down. He did confirm what Jamie has written.
I have the tax credit application in, but it won't apply if I can get my assessment lowered in December, but it will stay on record for when the assessment starts to jump again. Its a crazy jumbled mess, I really wish the city would fix this.
Posted by: pigtown girl | July 8, 2011 10:44 AM
Yeah, pigtown girl, that confuses people -- you can be Homestead-eligible based on your owner-occupancy but not receive any monetary benefit from the credit in certain years depending on how your property assessment changes. That won't keep you from getting it later when values change again.
Posted by: Jamie Smith Hopkins | July 8, 2011 11:08 AM
Jamie,
I really appreciate all the work that you do in this area. I have a question about my neighbors who own homes in two different counties. According to the State's real property website, they are claiming the homestead tax credit on both. This is illegal and unfair. Do you know a way to handle this? Thanks!
Posted by: sral | July 8, 2011 11:56 AM
sral, glad this information is useful!
As for the doubling up on the Homestead credit, you can alert the state Department of Assessments and Taxation. Here's the list of local offices with phone numbers: http://www.dat.state.md.us/sdatweb/county.html
Posted by: Jamie Smith Hopkins | July 8, 2011 12:03 PM
to sral,
Is your neighbor a Baltimore City Councilwoman? :)
Posted by: Bob | July 8, 2011 1:35 PM
I don't know how to solve this problem... but there should not be big penalties for a) updating/renovating a city house or b) applying to get permits and do the work the right way.
The current system disincentivizes people from buying in the city, while rewarding people (or at least not taxing them equally) when they don't apply for permits to do major renovation.
ALso... kind of off-topic, but I'm in Arizona this week... the housing situation right here is a huge disaster. Lots of terribly-built new houses sitting unsold, tons of foreclosure signs everywhere, and lots of half-finished or unfinished/abandoned projects. It's really a sight to see the fallout from the housing bubble....
Posted by: chappy10 | July 9, 2011 10:45 PM
Jamie, in your article from today (Mon) on home contracts/closings, you mention "Baltimore and its 5 suburbs". Do you mean 5 suburban counties? Or do you mean discrete suburbs such as, say, Towson, White Marsh, Glen Burnie, Owings Mills, etc? I'm assuming its 5 counties... but which 5? (I'm assuming Baltimore, Anne Arundel, Harford, Howard, and Caroll?
Posted by: chappy10 | July 11, 2011 12:42 PM
Sorry for the confusion, chappy10! Yes, I meant the five suburban counties -- Anne Arundel, Baltimore County, Carroll, Harford and Howard. I'll have more details in the full story -- what you see is the quick web-only version.
Posted by: Jamie Smith Hopkins | July 11, 2011 12:45 PM
This is a bit confusing, so I am seeking some clarity. I bought a house in Butchers Hill in April 2011. In May, I appealed my assessment of 290k since I bought the house for 200k. I also applied for the Homestead Credit. Now that I received my new July 2011 thru June 2012 bill it only went down to 280K! Can someone tell me how I can appeal this (if I need to)? Some homeowners tell me I should see a reduction in December 2011, but others tell me otherwise. I hand delivered my appeal to the St. Paul office back in May (well within 60 days) but have not heard back. Please help. Thanks.
Posted by: Leon | July 12, 2011 4:02 PM
Hmm, Leon, I'm not sure what's happening without seeing your assessment history. (Even then, it might not be clear.)
Your best bet for a first step is to call your local assessment office -- list here, http://www.dat.state.md.us/sdatweb/county.html -- and make sure that your appeal has already been heard.
Perhaps it hasn't yet, and the $280,000 assessment doesn't reflect an actual reduction. (Assessments are phased in over a three-year cycle. It's possible $280,000 is just the second-year phase-in of a $290,000 full assessment.)
I think you should have received a notice about your appeal, which makes me suspect that it's still pending. But if not, you can work your way up the appeal chain: http://www.dat.state.md.us/sdatweb/appeal.html
Hope that helps! Let us know the outcome.
Posted by: Jamie Smith Hopkins | July 12, 2011 6:04 PM
I was told I was unable to appeal my taxes until after I had already been in the property at least one year. And even then, they said w/in 4 months my assesssment comes up so they said I couldn't appeal until w/in the 30 days of my assessment in December
Posted by: pigtown girl | July 13, 2011 12:08 PM
pigtown girl, I think someone gave you bad information -- depending on when you purchased, anyway.
Here's the state Department of Assessments and Taxation's definition of the "appeal upon purchase" option: "If you purchase a property and the property is transferred after January 1 but before July 1, you may file an appeal within 60 days of the transfer."
If you buy in the second half of the year, then you can ask for your assessment to be changed for the following fiscal year by appealing no later than Jan. 1. That's the "petition for review" option.
Link: http://www.dat.state.md.us/sdatweb/appeal.html
Posted by: Jamie Smith Hopkins | July 13, 2011 12:16 PM
I figured as much. I've called there a bunch of times and each time it's different info. My assessment is this December, I've been in the house one year in a few weeks, so I'll make sure to do the appeal w/in 30 days of the assessment.
Posted by: pigtown girl | July 13, 2011 1:08 PM
You have to do the "appeal upon purchase" within 60 days of closing. Lots of times, the paperwork has not been filed by then, so you have to wait a while for the SDAT to get back to you.
We closed in late Feb, I filed the paperwork for the appeal in mid March, and I heard back in mid June. It was worth the time and they said they will adjust the future tax bills accordingly.
You can also file the Homestead paperwork soon after purchase, but you don't see any benefit from that until at least the 2nd July that you're in the house. And the benefits won't really add up unless you stay in the house for a decade or more... because the Homestead benefit doesn't really reduce your taxes, it simply limits how much your property tax can increase over time. Your taxes will still go up if the value of your house goes up (which may not happen for a long time in this market...) but over a long period, you'll avoid big increases.
Posted by: chappy10 | July 13, 2011 7:44 PM